Here's Why We're Wary Of Buying Titan Kogyo's (TSE:4098) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Titan Kogyo, Ltd. (TSE:4098) is about to trade ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Titan Kogyo's shares before the 28th of March in order to be eligible for the dividend, which will be paid on the 27th of June.

The company's next dividend payment will be JP¥10.00 per share, and in the last 12 months, the company paid a total of JP¥10.00 per share. Based on the last year's worth of payments, Titan Kogyo stock has a trailing yield of around 1.3% on the current share price of JP¥780.00. If you buy this business for its dividend, you should have an idea of whether Titan Kogyo's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Titan Kogyo reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Titan Kogyo didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 7.5% of its free cash flow in the last year.

See our latest analysis for Titan Kogyo

Click here to see how much of its profit Titan Kogyo paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Titan Kogyo was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Titan Kogyo's dividend payments per share have declined at 20% per year on average over the past five years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

We update our analysis on Titan Kogyo every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is Titan Kogyo worth buying for its dividend? It's hard to get used to Titan Kogyo paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Titan Kogyo as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for Titan Kogyo (1 is a bit unpleasant!) that deserve your attention before investing in the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.